FIN 364 DeVry Week 7 Homework

FIN 364 DeVry Week 7 Homework
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FIN 364 DeVry Week 7 Homework
FIN364
FIN 364 DeVry Week 7 Homework
FIN 364 DeVry Week 7 Homework
1. Question : (TCO 8) A contract designed to use the equity in a home for retirement income without any required
payments is called a(n) _____.
o
o
o
o
rollover mortgage
reverse annuity mortgage
adjustable-rate mortgage
home equity loan
Question 2. Question : (TCO 8) State and local governments make mortgage loans at below-market rates of
interest because
o
o
o
o
they want to compete with the thrifts.
they want to help local thrift institutions.
they can obtain funds for mortgage financing cheaply by selling tax-exempt securities.
they lend to lower income, larger home buyers.
Question 3. Question : (TCO 8) Which of the following is not a reasonable expectation for investors in passthrough
mortgage securities?
o
o
o
o
The securities are readily marketable.
They have little default risk.
The investor receives cash flows in proportion to his/her ownership proportion.
The timing of the cash flow return from the securities is quite predictable.
Question 4. Question : (TCO 8) Which of the following is not used to adjust ARM rates?
o
o
o
o
Treasury security rates
Dow Jones Mortgage Rate Index
S & L cost of funds index
LIBOR
Question 5. Question : (TCO 8) Which of the following is not a mortgage-backed security?

o
o
o
o
A jumbo mortgage
A Ginnie Mae pass-through
A collateralized mortgage obligation
A real estate mortgage investment conduit (REMIC)
Question 6. Question : (TCO 8) If you were a manager of a thrift institution and you expected interest rates to
increase, what type of mortgage would you most like to hold?
o
o
o
o
Balloon payment, 10 years
Rollover mortgage, two years
Adjustable-rate mortgage, monthly
Fixed-rate mortgage, 15 years
Question 7. Question : (TCO 8) Which of the following is not associated with tightened mortgage credit
standards?
o
o
o
o
More time on the current job required.
An increase in the loan/value ratio.
A decrease in the maximum total debt payments per month per amount of monthly income.
Decreased maximums in the payment/income ratio of borrowers.
Question 8. Question : (TCO 8) Which of the following is not true about construction-to-permanent mortgages?
o
o
o
o
Bridge financing is provided by lender over the time frame required by the borrower to purchase land and
construct the house.
Both interest and principal payments are made until construction is completed.
Loan is financed in increments as construction payments have to be made.
On completion of the construction, loan balance is rolled over into the type of mortgage contract desired by
borrower.
Question 9. Question : (TCO 8) Mortgage bankers usually do not
o
o
o
o
permanently fund mortgages.
originate mortgages.
service mortgages.
collect monthly payments from borrowers.
Question 10. Question : (TCO 8) The Tax Reform Act of 1986 increased the popularity of home equity lines of
credit because
o
o
o
o
tax deductibility of interest for homeowners was reduced.
interest incurred under home equity lines was made tax deductible, but interest on other household financing
was not.
banks and savings and loans were given tax incentives to make home equity lines of credit.
the law reduced the rates charged on home equity loans.
Question 11. Question : (TCO 8) Which of the following statements is true?
o All fixed-rate mortgages have interest rate caps.
o All adjustable rate mortgages have interest rate caps.
o An interest rate cap on a mortgage reduces the lender's interest rate risk exposure.
o Usually, an annual interest rate cap on a mortgage is 5%, and a lifetime cap is 1-2%.
Question 12. Question : (TCO 8) The original purpose of the Federal Home Loan Mortgage Corporation (Freddie
Mac) was to

o
o
o
o
make home loans to low income individuals.
purchase the conventional mortgages from thrift institutions.
purchase the insured conventional mortgages from financial institutions.
purchase the government insured mortgages from thrift institutions.
Question 13. Question : (TCO 8) What is the monthly payment on a $200,000 conventional fixed-rate mortgage,
9 percent, financed for 15 years?
o $2,028
o $1,500
o $1,389
o $2,067
Question 14. Question : (TCO 8) For a $200,000 conventional fixed-rate mortgage, 7 percent, financed for 15
years, what is the loan balance after 10 years if paid as agreed?
o $92,721
o $83,581
o $85,492
o $90,785
Question 15. Question : (TCO 8) What is the monthly payment on a home costing $150,000, 30 percent down,
25 years at 9 percent?
o $636.09
o $881.16
o $763.31
o $677.82